CENTRAL MEDICAL HOLDING LTD AND OTHERS v. TSANG WAH TAK KENNETH AND OTHERS

HCMP 1141/2024

[2025] HKCFI 4653

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1141 OF 2024

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DECISION

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INTRODUCTION

1.  This is the determination on the issue of costs in relation to the Plaintiffs’ summons dated 4 July 2024 (the “Summons”) for an injunction against the Defendants who were the then directors and employees of the Plaintiffs to compel them to: (i) identify the whereabouts of the corporation documents and information of the Plaintiffs; (ii) deliver up such documents and information to the Plaintiffs; and (iii) allow the Plaintiffs to have uninterrupted access to their office premises, as set out in the originating summons filed on 4 July 2024 (the “OS”).

2.  The Defendants initially resisted the injunction application. They filed affidavit evidence and submissions in opposition and appeared by counsel at the hearing.

3.  At the first hearing of the Summons on 12 July 2024, this Court made an order in favour of the Plaintiffs (the “Order”) substantially in terms of what the Plaintiffs sought under the OS.

4.  However, this Court made clear at the last hearing that the making of the Order was without prejudice to the Defendants contending at the substantive hearing that the Plaintiffs should not have made the application.

5.  The Plaintiffs submitted that armed with the Order, the Plaintiffs got the Defendants’ full cooperation. The new management of the Plaintiffs were finally in charge, had uninterrupted access to the office premises, and retrieved the necessary documents and information to prepare and publish the group’s consolidated accounts. The Order has now served its purpose, and it is no longer necessary for the Plaintiffs to maintain the Order and proceed with the OS particularly when all the Defendants have now resigned from the Plaintiffs.

6.  On 16 April 2025, by agreement, the Order was discharged. The only outstanding matter is costs. This Court gave directions for written submissions to be exchanged.

THE PLAINTIFFS’ CASE

7.  The Plaintiffs submitted that they are the effective winner in these proceedings as:

(1)  The Plaintiffs secured the cooperation of the Defendants with the Order and are therefore to be regarded as the real winner.

(2)  There is no basis to suggest that the Order was wrongfully granted. The Defendants did not appeal against the Order.

(3)  The Order was effective. Following the Order, the Plaintiffs were able to access documents and information that the Plaintiffs were shut out from previously.

(4)  These proceedings were necessitated by the Defendants’ conduct leading to the application on 12 July 2024. The evidence clearly demonstrated that the Defendants were deliberately unhelpful, sarcastic, and aggressive.

THE DEFENDANTS’ CASE

8.  The Defendants, on the other hand, submitted that the Plaintiffs agreed to a discharge of the Order and not to seek any final and permanent order against the Defendants in these proceedings. Effectively, the Plaintiffs are seeking discontinuance of the action, for which they require the leave of Court: O 21 r 3(1). An application for leave should be made by Summons or notice under O 25 r 7.

9.  The Plaintiffs make no mention of the requirement for leave whether in the Notice of Appointment to Hear the OS or their Skeleton Submissions. As matters stand, no such application is before the Court. But clearly the Plaintiffs cannot by its own procedural oversight (deliberate or otherwise) sidestep the Court’s discretion to grant leave on terms, which would, as a starting point, require the plaintiff to pay the costs of the other party.

10.  The Defendants submitted that the Court’s discretion should be exercised as follows:

“There be no order as to costs, save that Ps should pay Ds’ costs incurred after (a) 6/8/2024 or (b) 24/3/2025, to be taxed if not agreed.”

11.  In summary:

(1)  It is the Defendants’ primary stance that these proceedings were an abuse of the process in that they were entirely needless and were contrived by the Plaintiffs to put pressure on the Defendants with regard to a profit guarantee dispute, the subject of an ongoing arbitration.

(2)  However, given the need to keep the use of the Court’s resources within reasonable bounds in the context of a “costs only” dispute, it may not be feasible for the Court to make a determination on the Plaintiffs’ motive one way or another, especially in the absence of cross-examination and full submissions.

(3)  The Order was made purely to hold the ring pending substantive determination of the matter which the parties no longer require. It is premature for the Plaintiffs to declare victory because the “event” has not materialised.

(4)  In these circumstances, a neutral costs order would be the fairest way to apportion costs, subject to the need to compensate the Defendants for any costs unnecessarily incurred as a result of the Plaintiffs’ unreasonable rejection of the Defendants’ “drop hands” offers made on 6 August 2024 and repeated on 24 March 2025.

ANALYSIS AND DETERMINATION

12.  First, I am of the view that Mr Ling for the Defendants is fair in submitting that in this exercise of determining the appropriate costs order it is not feasible for this Court to make a determination on the Plaintiffs’ motive one way or another, especially in the absence of cross-examination and full submissions.

13.  Although the Defendants might legitimately have felt aggrieved by certain conduct of the Plaintiffs, this Court could not possibly determine that very issue in these proceedings. It is not for this Court at this stage to determine whether the Plaintiffs’ application was abusive and designed to put pressure on the Defendants in light of the arbitration between Town Health and inter alia Dr Tsang. In fact, this Court is not invited to do so. Hence, I am of the view that the motive of the Plaintiffs in obtaining the Order is neither here nor there. I am of the view that as a matter of legal rights, they are entitled to obtain the Order. The real question is whether it was necessary for the Plaintiffs to resort to court proceedings in order to get what the Plaintiffs sought.

14.  Secondly, I am of the view that it is not premature for the Plaintiffs to declare victory because the “event” has not materialised. The event in this case is the substantial relief as set out in the Summons and the OS. This Court has no idea about the arbitration proceedings. The costs of these proceedings are not parasitic or dependent upon the outcome of any arbitration proceedings between the parties.

15.  In general, I agree with Mr Chang for the Plaintiffs that the Plaintiffs came to Court for an order that would secure cooperation by the Defendants. They got the Order. After that, they got the Defendants’ full cooperation.

16.  Thirdly, in terms of the necessity to first apply for discontinuance of the OS, I agree that O.28 r.3 of the Rules of High Court (Cap 4A) provides that parties shall specify in the notice of appointment for a hearing of an originating summons the relief that it seeks. This is required because the OS procedure is “a relatively flexible one”, and the applicant may adjust the relief that it seeks at a particular stage of the proceedings depending on the nature of the claim and circumstances. It is hence fair and proper for advanced notice should be given to the other party ahead of the hearing of what the specific orders or directions would be sought in the OS: Leung Yuk Ling v Sanimec Co Ltd [2021] 4 HKC 463 at §7.

17.  In the present case, as indicated in the Notice of Appointment, the Plaintiffs are not seeking full relief as stated in the OS in this case. That is because the Order has already achieved the Plaintiffs’ objective. The only relief that the Plaintiffs seek is costs, and this marks the final resolution of the proceedings.

18.  In any event, even if there is a need of an application for discontinuation of the OS, it does not necessarily follow that the Plaintiffs should be deprived of their costs and/or have to pay the costs of the Defendants. A party is entitled to costs if it can be shown that it is to be regarded as the “effective winner” of the subject application.

19.  In China Shanshui Cement Group Limited v Ng Sau Man Clifford [2020] HKCFI 2677, the action was withdrawn by a consent order. The plaintiff applied for costs. At §§20 to 29 of his judgment, Mr Justice K Yeung surveyed the authorities on how the Court should approach the question of costs when the plaintiff discontinues the action. He came to the view that the Court should apply the “effective winner” principle, taking a broad-brush approach over the matter.

20.  Recorder Jenkin Suen SC came to the same view in Alis Academic Limited v Ares Academic Limited [2024] HKCFI 2701. There the plaintiff had issued an injunction to restrain winding up, upon which the defendant withdrew the statutory demand. The outstanding question was one of costs. At §6, he set out the following principles:

(1)  Where a matter was resolved without substantive argument, the starting point is to ask which party succeeded (§6(b)).

(2)  The Court should not be required or spend time dealing with speculative arguments about what might or might not have happened if one or other of the parties had dealt with the matter differently (§6(b)).

(3)  Where the case has become academic and a claim is withdrawn because of subsequent events, the discontinuing party is entitled to costs if it is the effective winner, and a broad brush approach can be taken by referring to all matters already laid before the Court (§6(d)).

21.  This Court also came to the same view in Perrine Chamonix Limited v Star League Limited and anor, unreported, HCA 1139/2017, 13th September 2017. In that case, the plaintiff sought an injunction against the 1^st defendant to restrain the operation of a brothel over the 1^st defendant’s property by the 1^st defendant’s tenant. The interlocutory injunction application was disposed by consent with the 1^st defendant giving an undertaking in terms of the injunction that was sought.

22.  Before the matter proceeded to trial, the 1^st defendant terminated the lease and the brothel closed. The action became academic and the plaintiff applied to discontinue the action. Costs became the only remaining issue.

23.  At §25, this Court rejected the assumption that the plaintiff ought to pay costs because it was discontinuing the action. Instead:

“The court does not adopt a mechanical approach. The court looks into the substance and the merits of an application. If, but for a plaintiff’s or an applicant’s application, he or she would not have obtained the relief he or she seeks in a writ of summons or a summons, then he or she is in effect the substantive winner of the case. The fact that a defendant consents to the claims by a plaintiff or an applicant which renders it unnecessary for the plaintiff or the applicant to continue the action or summons should not be a reason for denying the plaintiff or the applicant his or her costs. (emphasis added)

24.  In the present case there was an interlocutory injunction application by the Plaintiffs. It was disposed on terms favourable to the Plaintiffs without objection from the Defendants at the hearing on 12 July 2024 (despite the strong objection in the skeleton and affirmation filed by the Defendants ahead of the hearing).

25.  I agree that on proper analysis, the present dispute became academic and substantive argument became unnecessary as the Plaintiffs got what they wanted and what they came to Court for - there is no dispute that the Order gave the Plaintiffs substantially the relief that it sought in the OS.

26.  Fourthly and fundamentally, taking a broadbrush approach, I am of the view that the Plaintiffs do need to come to this Court to get what they wanted. This is itself evidenced by the Defendants’ evidence in opposition to the Summons.

27.  I do not find it constructive to analyse each allegation and counter-allegation of misconduct by the parties. I do not intend to repeat the respective narratives as set out in the parties’ written submissions. The long and short of it is that there were some resistances on the part of the Defendants to accede to the Plaintiffs’ requests for access to corporate documents. Indeed, in the draft terms proposed by the Defendants at the first hearing, items 1-3 are not entirely reasonable. I see no legitimate basis to (1) restrict inspection to no longer than 2 hours per visit; (2) limit the person to attend the onsite inspection to no more than two per visit and (3) demand that the Plaintiff must specify in the notice of the categories of documents they propose to inspect during each visit.

28.  If as Mr Ling submitted that there were obvious logistical and administrative hurdles and the Defendants were given too short a time to hand over the requested documents and materials, the proper way to handle such requests is to propose reasonable ways for the Plaintiffs to gain access to the same. It is no good to submit that all the documents, equipment and servers always remained on the Plaintiffs’ own premises to which the new management had full access if they had had no idea where their requested documents and materials were stored. The Defendants could properly identify the same and provide access for the Plaintiffs to inspect the same and take copies themselves.

29.  Further, it is also regrettable that the parties needed to enter into debates as to the Plaintiffs’ purpose of obtaining their requested documents and materials. Such debates only generate animosity and are unhelpful.

30.  Additionally, if the Defendants had any real concerns about the requirements of the Personal Data Privacy Ordinance, Cap. 486 and require an undertaking from the Plaintiffs not to remove any documents away from the premises or alter log-in credentials that would impede the daily operation of the companies, the same could be made clear to the Plaintiffs as conditions for their access to the requested documents and materials.

31.  Mr Ling is correct in submitting that had the same undertakings been offered earlier, and had the requests been made in a timely, orderly, civilised and clear fashion, there would have been no need at all to resort to legal action.

32.  However, I am of the view that once requests were made, if the Defendants considered that certain undertakings were required and/or certain logistic protections should be put in place to effect a smooth inspection, the same should be proposed by the Defendants as Mr Ling did during the first hearing. Had the Defendants done that and the Plaintiffs refused to be reasonable, then the Defendants would have legitimate reasons to argue that the requests should be subject to reasonable safeguards. Unfortunately, such mature and responsible approach was not adopted which resulted in the necessity for the OS and the Summons.

33.  I am of the view that this Court is entitled to take a global view of the present disputes and come to the conclusion that it is only with the Plaintiffs application that the underlying disputes were resolved sensibly during the first hearing before this court.

34.  Finally, the Defendants submit that if the Court is with the Defendants that there should be no order as to costs, then the Defendants should be entitled to costs after a particular date. It has put forward two potential dates. The first is 13 August 2024, when the Plaintiffs rejected a drop hands offer and that there be no order as to costs. It was part of the Defendants’ proposal that the action should be discontinued.

35.  However, by the Defendants’ own records, they were complying with the Order until mid-September 2024. The Plaintiffs then had yet to have full access to its own documents and information. The Plaintiffs also made a counter-offer for the Defendants to agree to be bound by a final / permanent order and bear to Ps’ costs of these proceedings up to that date.

36.  The Defendants rejected the counter-offer and proceeded to incur to prepare and file voluminous evidence in opposition. The Plaintiffs submit that that was a waste of time and costs. There was no point filing detailed evidence when Ds position was never to ask the Court to go into the details of the substantive dispute.

37.  The second is 24 March 2025, after the Defendants reiterated their no order as to costs suggestion.

38.  The Plaintiffs made the fair point that to the extent that the Defendants succeed in advancing their costs position, they would get costs for arguing costs. However, it does not follow that the Defendants should get costs for the hearing that took place on 16 April 2025. If the Defendants’ position was that it would argue costs, it could have said so explicitly, and the matter can be dealt with on paper. Instead, the Defendants’ position was ambivalent, and it was only at the hearing on 16 April 2025 that it made clear that it wanted a chance to put in full written submissions, when the Plaintiffs’ counsel indicated to this Court at that hearing that they were prepared to proceed with full argument on the spot that day.

39.  I fully appreciate that from the Defendants’ perspective, they take the view that the present application is oppressive and the Plaintiffs were determined to make the Defendants’ live as difficult as possible by, for example, insisting on hard copies (or originals) to be delivered physically rather than arranging onsite inspections, imposing impossible deadlines, failing to clarify their requests, making pointless demands (e.g. in relation to dormant companies), refusing to address legitimate concerns about data privacy of patients and contriving a so-called urgent application to the Court. The Defendants further said that all this, as both Fiona Zhang and Ares Leung both confirmed, turned out to just part of a scripted show.

40.  First, whilst I agree that the Plaintiffs could have inspected the requested documents and materials on site, it is not possible for this Court at this stage to rule that the whole application is a scripted show. Secondly, as I said earlier, the Defendants could have adopted a more mature and responsible approach which they did not.

41.  At the end of the day, both parties agree that this Court should take a broadbrush approach. I am of the view that taking all factors into consideration, the Plaintiffs have achieved substantially what they wanted to achieve through the Summons and the OS and they are the real and effective winner of these proceedings.

42.  In the circumstances, I make an order that the Defendants are to pay the costs of these proceedings to the Plaintiffs but only with certificate for one counsel. That should include costs of arguing costs, as well as costs reserved per §5 of the Order. I do not consider that this case merits the engagement of two counsel. Mr Ling has done a very competent job. I further summarily assessed the costs at HK$450,000.